$2.1T crypto wipe out: The dark triads strike again, this time through SBF

Crypto has fallen by over $2T trillion in the past year, and contracted values are expected to stay low. The FTX crypto exchange, formerly worth $40 billion, has gone bankrupt. This has affected over a million users, including 30,000 Australians. The implosion is one in a string of collapses that started with Luna in May 2022, when the TerraUSD became unanchored. 

What does this mean for the crypto ecosystem?

There is a cryptocurrency contagion taking hold of the market, and it threatens to destroy the whole ecosystem. But what is driving it? Cryptocurrency’s decentralisation is its biggest selling point but its Achilles heel while it is an emerging industry. It’s interesting because a lack of regulation in any area has historically attracted characters with dark triad traits.

The dark triad consists of narcissism, Machiavellianism, and psychopathy. People high in these traits are hardwired to exploit others. They are focused on self-attainment, with a broken moral compass. While these traits seem to describe a cinematic villain, they exist on a continuum. We all have a part of us that is narcissistic, psychopathic, and Machiavellian. 

It just so happens that those attracted to the industry rate much higher on the continuum. They float coins on exchanges with no real value and deceive investors into boosting them with expensive PR campaigns. Their claims that they have reinvented finance and can deliver 20% returns with no risk are all pipe dreams. The shiny exteriors hide the fact that crypto is a speculative asset with no real value and little integration in the financial system.

When Sam Bankman-Fried says he isn’t losing sleep over the FTX crash or that it could be worse,” he means it. His tweets that ask “what h a p p e n e d” highlight how out of touch he is with the consequences of his actions. Yet the dark triad traits aren’t always bad; it is about how you use them. This rashness gives us insight into the structure of the crypto market.

Crypto are speculative assets with no commodity or government guarantee behind them. This provides a perfect space for coercive and narcissistic personalities to flex their persuasive strengths – rallying people behind currencies with no real value and little use in the world financial system. For these crypto vanguards, it is not about the applications of the currency but how quickly they can make it ascend and whether they can pull out before it goes bust.

How do they do this?

First, crypto platform leaders create their currency (tokens), assign an arbitrary value to the tokens, and float them on an exchange to be traded. The next step is broadcasting the unbelievable returns (around 20% is standard) that people can get with your currency.

Hype and speculation will do the rest, sucking in capital and creating windfall increases in values. This practice is known as yield farming and is a direct expression of the dark triad. They promise the world and deliver an Atlas. The Machiavellianism of crypto’s leaders in yield farming to lure in vulnerable people is the first pollution of the dark triad into crypto. 

When the currencies collapse as prices crash, and the hollow interiors of the coins come to light, investors lose everything, not the platform founders. But they are so disconnected from their emotions that it means little to them. They will try again under a different business and hurt more people. Sam Bankman-Fried’s FTX exchange was underpinned by the dark triad.

FTX tapped into over $10 billion in customer assets to fund risky asset purchases in its main investment vehicle, Alameda Research. On its books, Alameda had over $3.3B in secondary crypto and over half of its $15 billion portfolio in FTT. This gross failure of risk management left the company vulnerable. As cryptocurrencies tend to fall in tandem, being a speculative asset, there would be nothing left to shore up the company in a sudden downturn.

These revelations about liquidity concerns prove that Bankman-Fried was not only convinced of his own infallibility but unable to think through the consequences of his actions. Bankman-Fried’s narcissism leads to overconfidence which bled into his interactions with others.

When pitching his vision for FTX to Sequoia Capital, he was playing League of Legends and talking about bananas being traded through his platform. Yet Bankman-Fried’s insolence and lack of respect didn’t cause a reprimand. Instead, it resulted in a 13,000-word hagiography, with its author claiming, “it was one of those your-hair-is-blown-back type of meetings.” Bankman-Fried’s narcissistic belief in his goodness drew sycophants around him like magnets.

Bankman-Fried also claimed to follow effective altruism. Effective altruism is not about donating money but investing in systems that help people build themselves. But to create independent communities, we need to address people’s base needs. This makes the narcissism and hypocrisy in Bankman-Fried’s desire to spend $15 billion on buying Twitter but keeping silent when the UN asked for $6.6 billion to avert famine in 2022 glaringly obvious.

Bankman-Fried was all about image. In his own words, “I had to be. It’s what reputations are made of, to some extent. I feel bad for those who get fucked by it by this dumb game we woke westerners play where we say all the right shibboleths, and so everyone likes you.” 

Speculative assets create bubbles, so when one falls, it creates shockwaves. In the wake of the FTX collapse, crypto bank Genesis halted withdrawals on the $2.8 billion it holds in active loans. A reckoning is coming as the rotten core of leadership and investments is exposed.

Ulrika Lobo is the Director of Sparrow Loans, a private property lender in Australia. Ulrika has nearly a decade of experience in finance, underpinned by an MBA and a Master of Finance. She was also recognised as Western Sydney Women’s Entrepreneur of the Year in 2021 and awarded ‘Finalist’ for Director of the Year in Women in Finance’s 2020 and 2021 awards.

Ulrika Lobo, Director of Sparrow Loans